Question 4 (20 marks)

The comparative statements of financial position for Hinckley SA include the following information.

Hinckley SA Comparative Statements of Financial Position as of December 31

2020 2019

Property, plant & equipment $236,500 $150,000

Accumulated depreciation (37,700) (25,000)

Long-term investments 0 15,000

Inventory 35,000 42,000

Accounts receivable (net) 43,300 20,300

Cash 30,900 10,200

$308,000 $212,500

Share capital-ordinary $130,000 $90,000

Retained earnings 70,000 29,000

Long-term notes payable 70,000 50,000

Accounts payable 21,000 17,000

Accrued liabilities 17,000 26,500

$308,000 $212,500

Additional information concerning transactions and events during 2020 are presented below.

1. Net income for the year, $76,000.

2. Depreciation on plant assets for the year, $12,700.

3. Sold the long-term investments for $28,000.

4. Cash dividends of $35,000 were declared and paid.

5. Purchased machinery costing $26,500 and paid cash.

6. Purchased machinery and gave a $60,000 long-term note payable.

7. Paid a $40,000 long-term note payable by issuing ordinary shares.

Required:

(a) Using the indirect method, prepare a statement of cash flows for Hinckley SA for the year ended December 31, 2020 with significant non-cash transactions disclosed in the notes. (16 marks)

(b) In reporting a statement of cash flows, the choice of either the direct or indirect method is available under the IFRS. Compare the two methods and discuss the differences between them. (4 marks)